How Credit Reports Work

Not monitoring your credit report can lead to excessive debt and additional fees. See more pictures of debt.

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If you've ever applied for a credit card, a loan to buy a house or car, or a line of credit to make some other large purchase, then you've probably had your credit report reviewed by the lender. If your report says you don't pay your bills on time, or that you have a lot of debt, you may not get that loan -- or you may get it but have to pay a higher interest rate. Because it can have such an impact on the things you do in your life, you should make sure that your credit report is accurate and that you understand how it affects the credit you can get.

In this article, we'll take a look at what goes into a credit report, who puts it there, and who can get access to it. We'll also find out how all of that information is compiled into a single document that can have a pretty big impact on your life.

A credit report is an accumulation of information about how you pay your bills and repay loans, how much credit you have available, what your monthly debts are, and other types of information that can help a potential lender decide whether you are a good credit risk or a bad credit risk.

The report itself does not say whether you are a good or bad credit risk -- it provides lenders with the data to make the decision themselves. Credit bureaus, also known as credit reporting agencies (CRAs), collect this information from merchants, lenders, landlords, etc., and then sell the report to businesses so they can evaluate your application for credit. Lenders make their decisions based on different criteria, so having all of the information helps them ensure that they are making the right decision.­­